Kenya: Special Audit in Sh60 Billion Dam Projects Complete

The Auditor-General has completed a special audit of the Sh60 billion Arror and Kamwarer dams whose procurement and financing has caused public outrage.

On top of the work done by the Directorate of Criminal Investigations (DCI), law enforcement agencies and prosecutors around the world have chipped in to assist with financial analysis, tracing funds and investigating money laundering, according to the Nation's sources.


American Federal Bureau of Investigation, the National Crime Agency, the Italian Carabinieri and the Prosecutor of Rome, Sergio Colaiocco, have all taken part in the investigation, in addition to private financial analysts and auditors, according to the sources who are not allowed to comment on ongoing investigations.

The Director of Public Prosecutions and the DCI appear to have put extra effort in evidence gathering, probably in response to earlier criticism that previous cases were not water tight.

Whereas the Nation's regular sources were not particularly forthcoming, interviews with officials who are briefed on the investigations or routinely review reports, suggested that a damning case was either complete or in the final stages.

Now the question is whether there is political appetite to take to court powerful national government and parastatal chiefs who have been under investigation or whether political calculations will trump the desire to fight corruption.

It is clear that top government officials bent the rules, and maybe even misled the public about the state of national finances, in order to award the tender to the bankrupt Italian firm CMC Di Ravenna.

The company was to finance the Arror and Kimwarer dams project but the Kerio Valley Development Authority (KVDA) and the National Treasury went ahead to spend Sh20.5 billion of taxpayers' money on the ghost projects, the sources claimed.

The contract signed between the KVDA and CMC Di Ravenna was to see the Italian firm dig into its own pockets to complete the projects, set up a power plant, transmission lines and other related infrastructure and recover its money by selling power to the government for an unspecified number of years before handing back the dams to the government.


Instead, the National Treasury shopped for expensive loans in Italy and spent Sh20.5 billion for which Cabinet approval has been sought.

The dams were strongly opposed by the Kenya Forest Service (KFS), which owned the tracts of forest-covered land that was acquired for the ghost projects.

The National Environmental Management Authority approved the projects.

Initially, KVDA was of the opinion that the bid price for the projects would depend on how successful CMC Di Ravenna was in finding money for the projects. Along the way the financing agreement became a commercial loan in unexplained circumstances.

National Treasury's loan shopping was successful and it secured a Sh61 billion loan which was said to constitute 85 per cent of the loan from the Italian government and the balance a commercial loan.

As it turned out, it was fully a commercial loan and the Italian government's only role was to help Kenya secure a loan for the dams.

CMC Di Ravenna was to receive 15 per cent of the contract sum, or Sh7.662 billion, as an advance payment.

The Italian firm was paid Sh7.86 billion, while Sh11 billion went to insuring the project's loan. Another Sh900 million was given to Italy's government as a commitment fee.

The insurance agency, SACE, was paid a non-refundable fee of Sh10.7 billion and yet, it was one of the co-financiers of the project, a conflict of interest.


Treasury officials, the Nation learnt, warned that borrowing Sh61 billion increased the public debt to 52.9 per cent of GDP, well above the legal limit of 50 per cent of GDP.

A consortium of five private international financial institutions lined up to bankroll the two projects through a London-based agent: Intesa Sanpaolo SPA, a leading Italian banking group.

The audit, sources said, found that when examination of bids for the two projects was ongoing, the first tender evaluation committee noted that KVDA did not float an expression of interest -- a document used to assess the number of institutions capable of and interested in the job -- before calling companies to submit their bids.

The committee noted that with absence of the assessment, it was difficult to determine the best bidder.

Rather than address the irregularity, the evaluation committee changed the rules of the game by cherry-picking six bidders to fight it out for the contract.

Despite the fact that the evaluation committee was able to rank the best six bidders, it still held that it was unable to declare a winner.

The method used by evaluators, sources said, is strictly reserved for procurement of consultancies and services but not construction projects.

For the Arror dam, CMC Di Ravenna was declared the best bidder.


But for the Kimwarer project, China's Sinohydro won. During negotiations, however, the Chinese firm refused to review their financial proposal before being awarded the tender.

CMC Di Ravenna, which came second, was declared the winner.

The KVDA received 15 bids for the two projects from foreign firms. Neither of the two evaluation committees that oversaw the procurement process raised a finger in correcting the irregularity.

Government auditors believe KVDA should have stuck to open tender for such a project.

Despite CMC Di Ravenna putting in a solo bid and being declared the best bidder in an irregular tendering process, the KVDA awarded contracts for the two dams to a third party, a joint venture.

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